In a recent post, we looked at the rising number of people being paid less than the (voluntary) living wage. The Living Wage Foundation has just published the latest annual update to the living wage. This brings it to £9.40 per hour in London and £8.25 outside London – well above the statutory National Minimum Wage of £6.70 for those aged 21 and over. Even when employers are required to pay at least the so-called National Living Wage (NLW) of £7.20 per hour from April 2016 to those aged 25 and over, the NLW will still be well below the living wage.

Read the earlier post and then answer the questions in the light of the new living wage rates and the new linked articles.

Questions

By referring to the Living Wage Foundation site, explain how the living wage is calculated. If you were defining the living wage, would you define it in this way? Explain.

Distinguish between low pay and poverty. Does pay give a good indication of poverty?

For what reasons has the number of jobs paying below the living wage increased? Does marginal productivty theory provide an explanation?

Is it best to base statutory minimum wages on median earnings, mean earnings or the cost of living? Explain.

If more 6 million jobs pay below the living wage, does this mean that 6 million people, more than 6 million people or fewer than 6 million people receive average hourly wages below the living wage? Explain.

For what reasons might firms volunteer to pay the living wage to their employees? Is doing so consistent with the aim of profit maximisation?

Why are more women than men paid wage rates below the living wage?

Why does the proportion of people being paid the living wage vary from one part of the UK to another? Is this likely to be purely a reflection of differences in the cost of living?

In 2014, 19% of jobs in London and 23% of jobs outside London paid less than the living wage. This is according to figures just published by the Office for National Statistics. The figures compare with 17% and 22% respectively in 2013. The problem is that while the living wage rises with the cost of living, median wages have not kept pace with prices: in other words, in real terms median wages have fallen.

The London Living Wage is an hourly rate of pay, calculated according to a combination of the costs of living in London and 60% of the median wage. This gives the wage rate needed to give a worker in London enough to provide their family with the essentials of life, including a cushion against unforeseen events. Unlike the compulsory national minimum wage, the London Living Wage is a voluntary commitment made by employers, who can become accredited with the Living Wage Foundation.

As the Chart 1 illustrates, the living wage is above the National Minimum Wage. Since November 2014, the living wage in London has been £9.15 in London and £7.85 in the rest of the UK. It is due to be uprated at the beginning of November 2015. From 1 October 2014 to 30 September 2015, the National Minimum Wage (for people aged 21 and over) was £6.50. It rose to £6.70 on 1 October 2015.

Note that the (voluntary) living wage is different from the compulsory ‘National Living Wage’ announced by the Chancellor in his July 2015 Budget, which will come into effect in April 2016 as a top-up to the National Minimum Wage (NLW) for those aged 25 and over. This will be only 50p above the National Minimum Wage and thus considerably below the living wage, although the Chancellor has pledged to increase the NLW to 60% of median wage rates for those aged 25 and over by 2020. According to the Office for Budget Responsibility, “the NLW will rise from £7.20 in April 2016 (equivalent to around 55 per cent of estimated median hourly earnings for employees aged 25 and over) to around £9.35 in April 2020 (reaching 60 per cent of expected median hourly earnings for that group) in steps that imply the rise relative to median hourly earnings is a straight line.”

The percentage of people being paid below the living wage varies by occupation, location of jobs (see map in Chart 2 – click to enlarge), sex and age and whether the job is full or part time. For example, in accommodation and food services, in retail and in sales and customer services, more than half the jobs paid less than the living wage. A greater percentage of women than men were paid below the living wage (29% and 18% respectively outside London). As far as young people are concerned, 48% of 18–24 year olds were paid less than the living wage in London and 58% outside London (see Chart 3). In London 45% of part-time jobs paid less than the living wage; in the rest of the UK the figure was 43%.

As The Guardian article linked below reports:

A spokesman for the Living Wage Foundation, which sets the figure each year, said despite ‘significant progress’ in many sectors, more jobs than ever were below the voluntary rates.

“These figures demonstrate that while the economy may be recovering as a whole, there is a real problem with ensuring everyone benefits, and low pay is still prevalent in Britain today,” he said.

The following articles look at the evidence presented by the ONS and examine the incidence of low pay in the UK.

Questions

By referring to the Living Wage Foundation site, explain how the living wage is calculated. If you were defining the living wage, would you define it in this way? Explain.

Distinguish between low pay and poverty. Does pay give a good indication of poverty?

For what reasons has the number of jobs paying below the living wage increased? Does marginal productivty theory provide an explanation?

Is it best to base statutory minimum wages on median earnings, mean earnings or the cost of living? Explain.

If 6 million jobs pay below the living wage, does this mean that 6 million people, more than 6 million people or fewer than 6 million people receive average hourly wages below the living wage? Explain.

For what reasons might firms volunteer to pay the living wage to their employees? Is doing so consistent with the aim of profit maximisation?

Why are more women than men paid wage rates below the living wage?

Why does the proportion of people being paid the living wage vary from one part of the UK to another? Is this likely to be purely a reflection of differences in the cost of living?